Google Penalty Hits eBay’s Bottom Line, May Cost Up To $200 Million In Revenue

Earlier this year, eBay was hit with a search penalty by Google. The loss of traffic resulting from that has been noticeable enough that eBay acknowledged it in a financial call this week, suggesting it may have cost up to $200 million in revenue.

eBay also said it plans to improve its efforts in paid search, something that was underway even before it hit a penalty — and a seeming rejection of an eBay research report that said paid search doesn’t work well.

Now, let’s turn to the Marketplaces business. Marketplaces delivered $2.2 billion in revenue, which grew 6%, GMV grew 8%, and operating margin declined 340 basis points. It was a challenging quarter. As John indicated, we got off to a good start, but we had significant obstacles late May.

The combination of the cyberattack and the Google SEO had an immediate and dramatic impact on GMV growth. June GMV growth was 7% driven by slower active buyer growth and lower conversion. In light of these events, we have made significant investments to get eBay users reengaged, including couponing, seller incentives and increased marketing spend . . .

To translate, as best I can, the “Marketplaces” business is a reference to eBay’s core auction and merchandise listings, along with other business operations but not including PayPal.

Swan is saying that the business grew but that it didn’t apparently grow as much as hoped, in particular for the “GMV” or “gross merchandise volume” metric that’s tracked. Why not? In part, because of something to do with Google SEO.

Swan never explained on the earnings call what exactly the Google SEO issue was. It was just suddenly tossed out as an issue without any background, perhaps because Swan assumed that the financial analysts on the call were familiar that eBay had suffered some problems with Google earlier this year.

In particular, it was initially believed that eBay was one of many companies impacted by a change to Google’s automated “Panda” algorithm, which seeks to filter out low-quality “thin” content from its top results. However, it later emerged that eBay was hit by a manual penalty, where a human being at Google decided some of what eBay was doing was outright spam.

Fixing SEO Problems “Will Take Longer & Cost More”

Later in the call, Swan said that it will take some time to solve the penalty issue, which will be an ongoing drag to its auctions business (again, with the key part bolded):

We have had a challenging start to the year. As we entered the second half, our PayPal business has good momentum, our eBay Enterprise business has stabilized, but our Marketplaces business has to dig out of a hole. While we are confident we will work through the global password reset and the SEO changes it will take longer and cost more.

The $200 Million Penalty?

Later in the call. Swan mentioned that the SEO issues impacted the ability to attract new people to eBay (I’ve bolded the key part):

The consistency was quick, swift and immediate impact when we know – when we were not letting people in the door until they reset their password and/or we weren’t getting the new buyer traffic from SEO.

Swan also gave an indication of the upper limit of what the penalty may ultimately have cost eBay:

As a result we are lowering our high end full year revenue guidance by $200 million from $18.5 billion to $18.3 billion.

In short, eBay expects to earn $200 million less than it initially forecast. Not all of the drop is due to the problems with SEO traffic from Google, but that is the on-going problem that’s not easily fixed, eBay says. Consider the $200 million the upper-limit of what that problem has cost eBay in potential revenue.

Growing With Better Paid Search & Social

Swan is still optimistic that growth will get back to double-digits, saying:

Yes, we got a couple of body blows in Q2 with they are having to reset the passwords and the SEO change, but we are continuing to invest in this business and we think it’s going to be us one of the winners in e-commerce and we will have strong double-digit growth. That’s our goal. We are focused on it. We still believe that’s achievable.

When asked about doing more marketing for eBay’s listing business, Swan indicated that eBay had decided even before the SEO fallout to do a better job with its SEM/paid search campaigns:

We came into this year saying that we are going to be investing more in the marketing as a percentage of total to drive more demand. That was kind of one of those generic learnings from last year to this year. So pre-password reset and SEO we were in fact stepping up our level of spend.

In terms of how we drive traffic more specifically, obviously we got a great brand, so the majority of our traffic continues to come direct because of the eBay brand. And then on keyword buy being less generic about where it makes sense and more specific and particular geographies is one of the test and learn things we do take of a generic spend to be more specific.

And then third is CRM, all of this data that we accumulate on this site we are going to be increasingly smarter and sharper about how do we use that data to reach back out directly with CRM and email campaigns to bring that traffic back to the site.

And then fourth one I would just say is we continue to in the test and learn bucket that John highlighted is social, how do we divert or reallocate some of our money to more social channels to drive engagement and curation.

I’ve bolded the key points. First, Swan makes clear that eBay’s plans to do better with paid search were in the works even before it was hit with a Google penalty. That’s important, because some have assumed that Google slammed eBay to block “free” SEO traffic as an attempt to make eBay spend more on paid search.